Instalco AB (publ)

Hello everyone and welcome to this presentation of Instalco's report for the first quarter 2024. My name is Robin Bohman, I'm the CEO at Instalco and with me today I have our CFO Christina Kasper. To start off, just to give you a little bit of an insight of Instalco. Instalco is one of the leading installation groups in the market of Sweden, Norway and Finland. Our main business areas are installation of electrical heating and plumbing, ventilation, and also solutions for the industry and technical consulting. As you know, we operate in a truly decentralized model, but with a strict control mechanism. In total, we have over 6,200 employees working every day to help facilitate the green transformation. Demand for our services that we offer is supported by several strong underlying market drivers. One example of this is the newly adopted EU Directive, Energy Performance of Building Directive. Although we still do not know exactly how this will be implemented on national level, It is absolutely clear indicator that we need the qualified installers will continue to grow and the underlying market long term will be good. Going into key financials for the last 12 months. Net sales have been approximately 14.3 billion. Order backlog is almost 9 billion SEK. EBITDA is 1 billion 83 million. which contributes to an EBITDA margin of 7.6%. Cash flow for our operations is 975 million. And a new thing on this slide is that we showcase the number of companies we have in Instalco. And we have done a little bit of an update on how we calculate that. We have previously spoken about subsidiaries as well as additional companies, meaning when a company is a subsidiary of one of our subsidiaries. However, over time, many of these companies have grown into companies of their own. So as of today, we have 157 companies. In the old way of counting, we would have been 137 companies. But you could also say that these are the number of customer-facing brands that we have. Intech for example is still counted as one, our technical consultants, even if they have a dozen companies running. Highlights from the quarter. There is no denying that the market is much more challenging compared to a year ago. Despite this, we report a stable financial development in line with the same quarter last year. There is also some tendencies of positive signs in the market. And despite how selective we are when it comes to order take, we report the sequential improvements on the order backlog. On operational fronts, our technical consultants at Intech have during the quarter also expanded into Finland, in addition to their existing business in Norway and Finland. And the plan there is to continue the growth organically or via acquisitions, just as we have done in the previous countries. I'm also pleased to see that our technical consultants reported their most profitable quarter to date above group margins. While it still makes up a small part of our business, It is a good proof of point and that our concept works and that the startup model is well working. And now I would like to hand over to Kristina and please take us through a little bit of those developments in more detail.

Thank you, Robin. On this slide, we can see the increase in net sales with comparison of Q1 present and prior year. as well as the development of the order backlog. Acquired growth represented 9.9%, with the biggest percentage increase within the rest of Nordics. Organically, the top line was down 8.1%. In total, net sales grew by 0.6% and amounted to close to 3.3 billion. This slower growth rate than we are used to is partially the result of our previously cautious taking of orders. Also for this period, our backlog was down 0.7% compared to the same quarter last year, but somewhat up sequentially since Q4. We have however maintained the caution I talked about, choosing to only go after the right projects and the right customers. Our subsidiaries have adapted well and service, which as a reminder is not included in the order backlog, remained on a high level of 32% in the quarter. We are convinced of the long-term potential in our industry and do not want to be locked into weak projects when demand and the price picture turns upwards again. The demand from our clients continues to increase and investments are piling up. We are well positioned for further profitable growth when the turn comes. This slide shows the quarterly trend of EBITDA in both millions and margin. As you are probably familiar with by now, Q1 tends to be our seasonally weakest quarter In Q1 this year, our EBITDA amounted to 231 million, essentially flat compared to the same period last year. This despite the negative organic development of net sales, showcasing the flexible cost base and also our ability to adjust to the market situation. Ever since Instalco was established 10 years ago, the focus has been on high profitability and Right now we are facing a weaker market and we are together with subsidiaries implementing cost saving and efficiency programs in some of our companies where that is necessary. The savings will give effects from let's say over to the coming 6 to 12 months. All in all this corresponds to an EBITDA margin of 7% in Q1 compared to 7.1% last year. Now to a slide that summarizes segment Sweden in Q1. Overall, the market for new construction, renovation and energy efficiency measures is good for both commercial properties and also facilities in the public sector. For new production of residential property, there is a clearly noticeable dampening effect. primarily due to the interest rate situation. Geographical differences in the market situation have increased even more. Southern Sweden has experienced a downturn for quite some time, but now they notice some positive signals. Demand is better in the north, however. Compared to prior periods, the market has become worse in central Sweden. overall the net sales were down slightly to 2.25 billion while organic growth was down by eight percent despite this segment sweden reported an ebta margin essentially in line with the last year's q1 at 7.9 overall a good earnings development with a recovery from prior periods and positive effects from the industrial business area. And this is a summary of the rest of Nordics segment. As mentioned last quarter, the development of the market in south of Finland has been stable in recent months, though at a relatively low level. The market in northern Finland has shown slightly positive signs. In comparison, the market in Norway remains at a relatively high level without much change from previous quarters. There is, however, slightly more caution being exhibited when it comes to decisions about project starts. In Stalko, this translated to a net sales growth of over 10% in Q1 Organic development was down 8.4%, which was compensated for by an acquired growth of 20.8%. We are pleased to say that the EBITDA grew more than the top line by 13% to 54 million, corresponding to a margin of 5.3% compared to 5.1% a year ago. Then on to a new slide we haven't presented before. We have for the last year talked a lot about our increased focus on working capital and cash flow. So now felt like a good time to give it extra attention. For the first quarter, we report a stronger EBITDA and changes in working capital are at par with last year. This coupled with somewhat higher adjustments for non-cash items and higher tax paid. The higher tax paid tied to rising interest rates reflected on tax accounts leads to an operating cash flow at 198 million for the quarter. This translates to a cash conversion for rolling 12 months of 91%. a significant improvement over 82% a year ago. We have a lower outflow from our investing activities as a result of, for the moment, our lower acquisition pace. On the final line, you see the fact that we have repaid loans as opposed to taking out new ones. In conclusion, our focused efforts on working capital management have yielded tangible results as evidenced of our improved EBITDA and strong operating cash flow. To then look at our performance in relation to our financial targets. For the duration of the 10 years Instalco has existed, we have constantly performed well beyond our growth target. For the quarter, the growth is not at 10%, but we are well positioned to capture opportunities for profitable growth when the market turns. Our EBTA margin remained roughly in line with last year and came in, as said, at 7%. Still a strong performance given the market and the seasonality effects. After the first quarter, our leverage remained within range of our target at 2.4 times. Cash conversion improved from 82% in Q1 and now at 91% due to our increased focus on working capital. And finally, the board has proposed a dividend in line with the 30% policy to be decided at the AGM next week on Monday. All in all, a stable growth in earnings given the current market situation and we remain secure with our balance sheet and operational priorities. So by that, over to you again, Robin.

Thank you very much. To take a look at some of the strategic moves we have made during the first quarter. Our pace of acquisition, as you said, Kristina, has been somewhat slower compared to the big ones we did a year ago. But we made two acquisitions and I would like to go a little bit deeper into one of them, Lund Electro. It is a smaller company that was founded 2011 and mainly works with installation of digital solutions on homes, charging stations, solar cells, etc. Through the acquisition, we become fully multidisciplinary in Kristiansand region in Norway. And it was also a good opportunity for collaboration between the companies, which is in line with our Instalco model. Besides acquisitions, we talk a little bit about our startups because we have other ways of growing except M&A. An important one is the proven startup concept that was founded in 2016. It is essentially where we co-found a new company instead of buying an existing one. This is all about finding the right entrepreneurs and making them join the team. And together with us, they will co-own that company for a few years. Intec is, for instance, a good example of the startup model within Instalco. And we have several more interesting plans in the pipeline for the coming future. Recently, we announced another exciting addition to the Instalco team, which is our startup company, Eastec OS in Norway. Eastec is focused on building automation, energy efficiency, and smart building technologies. Building automation plays an important role in ensuring that there is a coordinated selection of installation, but also products that are compatible with each other. And we have not previously had the automation company in Stalko Norway, and therefore E-stech is filling a long awaited place in the group. Going into the project of the quarter, I think this is a good highlight actually as a project. It is the Instalco company Omegi who won an exciting contract with NCC. Stockholm is adding several new stations to the metro system to make it easier and quicker to travel between various parts in the city. A new station we will build in Hagastaden near Karolinska, the university hospital in Stockholm, which is part of a new subway line called Arenastaden. The assignment for Omega includes installation and delivery of all power and lighting as well as reserve power and system for uninterrupted power supply at the new station. And it's expected to be completion is towards 2026. I think why I highlight this is that this is a great example of how infrastructure investments can lead to new traditional installations assignments for us as well. Now going into the theme of the quarter. The quarter's theme is how we are able to protect our margin in this market and the foundation of Instalco as well as specific actions that we have taken during the quarter. To start off There are two pillars of Instalco, our staff and our Instalco spirit. In investor meetings, I usually say that our balance sheet walks out the door at the end of the day, and we can only hope it returns in the morning. There is no doubt that the expertise and the engagement of our employees is our most important asset. Therefore, I'm very pleased to present the numbers from our quite recently published annual report. The result from our employee satisfaction survey within Instalco has always been very high. In 2023, we transition into employee net promoter score measurement. From this, we can see the result of score that we achieved is 30. And this is much higher than the average of our sector. And we're so incredibly proud to be able to present this number. It really reflects the uniqueness of Instalco spirit and that really exists throughout the group. And it's all about the entrepreneurial spirit and also the Instalco model where we put emphasis on the local companies. We make sure that we have cooperation between the local entities and we support this with a small but very efficient central organization. And this is key to the success of Instalco. As part of the entrepreneurial spirit is also reflected in our culture of profitability. On paper, it isn't maybe rocket science, but the magic is in the implementation and there is a lot of nuance within each factor. These are a few of the key things that we look for in a profitable culture. It is collaboration, leadership, a client and project selection, project and business control, and also focus on procurement. Within our decentralized model, eFocus is our internal program to continuously help our companies improve their profitability. It aims to streamline processes in production, procurement, sales, cross-selling, and cash management. Another important component of the program is sharing and spreading best practice within the group. We also implemented Go Great in 2023, which is a tailored program to offer additional support to companies performing below the group profitability target. And this concept is offering support to specific companies where we in the group central organization can allocate resources to these companies so that they can develop and improve their local operations. Go Great is also helping develop our tool of E-Focus because everything we learn from these companies when you do these Go Great programs we will implement in E-Focus. The emphasis on Go Great is on profitability and efficiency throughout the entire organization. Because sharing knowledge and getting the maximum benefit from being part of Instalco and through the Instalco spirit and through the decentralized model is key to our success factor. And I'm showing you one illustrative case here of a company, a longtime member of the Instalco family that had an extra tough time during COVID-19. They had high volatility in results month to month and falling profitability. And I think it was a little bit of a lack of control. And here are a few examples of what we did. We standardized calculation templates and methods of updating the values and inputs to these calculations. We helped them with overhead cost control, also to the data we have from different subsidiaries within Stalco, so we can generate a lot of information from other uh companies we implementation of kpis and joint development of new ways of working we also invested a little bit in refreshing premises to boost morale in staff and we also trained specific members of the staff and here is an example of that specific company on the right hand side where you can see that they recovered and are now actually performing above group level So this is a good example of where good-great really paid off. Going back to Q1, I finally would like to return and sum up the years with some key takeaways from the quarter. I'm proud to say that we reported stable numbers despite the more challenging market. We have implemented selected cost savings programs in subsidies where we deem it necessary. We maintain our strategic project selection, as Christine has mentioned before, where we are cautious of what assignments we bring to the order backlog because we know that the demand from our clients continues to increase and investments are piling up. We have made two small acquisitions during the quarter and have increased our efforts on providing new startups through our startup model. Our technical consultants within InTech have also started in Finland and are now reaching 400 technical consultants. So we represented in all three countries. InTech performance in the first quarter was very good, exceeding the group margins. So showing that this model really works. All in all, we're well positioned over the near future to protect our margin and act on opportunities as soon as the market situation turns to a more positive way. And with that, I would like to thank you for joining this call. And I now open up for any questions.